It is normal that the share prices of euro-zone banks are a very sensitive indicator of financial markets’ risk perception

The variability of share prices of euro-zone banks is very high, with a beta of around 1.6 - 1.7 in the recent period . This situation is normal, as investors know that a deterioration in the economy will lead to a dilution of the banks’ former shareholders and a lasting halt to dividends due to the nature of bank regulation. If the economy deteriorates: Euro-zone banks will have to maintain their capital levels while facing borrower defaults; And it is even likely that they will have to increase their capital by facing more severe stress tests. It is therefore legitimate to use the share prices of euro-zone banks as a high-frequency indicator of investors’ perception of risk and economic prospects.